If that's a Life-Like diesel with a 35xx cab number you may be able to get a replacement motor from Life-Like through Walthers. Contact their Customer Service folks at 1-800-487-2467 to check availability. Probably run you $12 - $15 plus S&H if they have them.

Then like I said, there should be room for a low control voltage solid state or micro-sized relay rated to control 12VDC to handle the track power to the smoke unit. Then you can use the decoder function output to trigger the control side of the relay.

I've done this with some old American Flyer locos that I converted to DC can motors and DCC control. The decoder only has to supply a volt or two to trigger the relay. The main relay contacts actually handle the track voltage to the smoke unit.

I use RR-Track http://www.rrtrack.com/ at the store to help folks figure out if their plan drawn on a napkin will really work. They are pretty good about keeping the track libraries updated with new items, and updates are free.